Crash Course in Nontraditional Loans

Some specialty-mortgage terms:

· Interest-only mortgages. Your monthly mortgage payment covers only the interest you owe on the loan for the first five to 10 years of the loan, and you pay nothing to reduce the total amount you borrowed, called the principal. After the interest-only period, you start paying higher monthly payments that cover both the interest and the principal that must be repaid over the remaining term of the loan.

· Negative-amortization mortgage. Your monthly payment is less than the amount of interest you owe on the loan. The unpaid interest gets added to the loan's principal amount, causing the total amount you owe to increase each month instead of getting smaller.

· Option-payment adjustable-rate mortgage. You have the option to make different types of monthly payments with this mortgage. For example:

-- A minimum payment that is less than the amount needed to cover the interest and increases the total amount of your loan.

-- An interest-only payment.

-- Payments calculated to pay off the loan over either 30 years or 15 years.

SOURCE: "Shopping for a Mortgage? Do Your Homework First," by the Center for Responsible Lending and the National Association of Realtors